Tax Planning for Dental Practice Sales: Keep More of What You Have Built
The difference between a well-planned dental practice sale and a poorly planned one can be $300,000 to $500,000 in tax. Our in-house tax expertise, including experience as a former CRA Rulings Officer, ensures your transaction is structured to minimize tax from the start.
Lifetime Capital Gains Exemption (LCGE)
Eligible dentists may shelter a significant portion of the gain on a share sale using the LCGE (currently over $1 million). Requirements: shares must be Qualified Small Business Corporation (QSBC) shares, and certain asset and holding-period tests must be satisfied. These tests require advance planning, often 2+ years before the sale. If your professional corporation currently holds non-active assets (investments, excess cash), a pre-sale reorganization may be needed to purify the corporation and qualify.
Corporate Reorganizations
Pre-sale reorganizations may be needed to: purify the corporation by removing non-active assets (investments, excess cash) so shares qualify for LCGE, restructure share ownership among family members for income splitting or estate planning purposes, and establish or optimize holding company structures for asset protection and tax deferral. These steps must be planned well in advance with a tax advisor. This is where our LL.B. in Taxation and former CRA experience is critical: we build structures that hold up under CRA scrutiny because we know how they evaluate them.
Asset Sales and Tax Allocation
In an asset sale, parties negotiate how the purchase price is allocated among tangible assets (equipment, leaseholds), intangible assets (goodwill, patient records, trade name), and inventory. This allocation affects the seller's tax on recapture and capital gains, and the buyer's future tax deductions (capital cost allowance). Proper allocation is negotiated between the parties and has direct financial impact on both sides.
GST/HST Considerations
Certain practice sales may qualify as a sale of a business as a going concern, which can reduce or eliminate GST/HST on the transaction if proper elections are filed. Missing this election can create a significant and unnecessary tax liability.
Why Start Tax Planning Early
Every year your practice operates without proper tax structuring is a year of unnecessary tax leakage. If you are thinking about selling in the next 1–3 years, the time to start planning is now. LCGE qualification alone can save you over $250,000 in tax, but the qualification tests require your corporate structure to be clean well before the sale.